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April 20, 2014

How to Cash In on Rare Coins

Numismatic experts outline a few key steps for investors to find potential profits and diversify portfolios

Collectible coins can be a fun and potentially profitable way for investors to diversify traditional investment portfolios.

Who says a dollar doesn’t buy what it used to?

Heritage Auctions sold an 1804 U.S. silver dollar for $3.9 million less than a year ago.

As is the case with many rare coins, the silver dollar has a fascinating backstory. According to the Dallas-based company, the coin was actually made in 1834 or 1835 despite the 1804 date. U.S. State Department representatives used the coin as a diplomatic gift on trade missions to the Middle East and Asia.

It is one of only eight of its kind and is considered one of the most prized U.S. coins.

Collectible coins can be a fun and potentially profitable way for investors to diversify traditional investment portfolios.

The emphasis should be on the “potential” nature of profits and the longer-term perspective these investments require. Like other collectibles, coins involve dealer markups and price volatility.

The Professional Coin Grading Service 3000 price index, which includes multiple component-coins, peaked at $181,000 in May 1989 before dropping precipitously to about $47,000 in December 1994. Prices recovered somewhat, but the financial crisis knocked the index back from about $73,000 in late 2008 to roughly $67,000 in mid-2012.

The benchmark now trades at around $67,740, slightly off its 12-month high of 67,935.

The current market looks healthy, says Chris Lane, general manager of numismatics with Heritage Auctions. In addition to Heritage’s successful auctions featuring rare coins, he points to the very strong demand for the U.S. Mint’s March sale of Baseball Hall of Fame coins as an example of market strength.

These coins have a unique curved shape to match the struck baseball glove and the $5 gold coins sold out immediately. According to a report on the Coin World website, these coins originally sold for $420 are now selling in the eBay secondary market for about $700.

The challenge for any collector, especially newcomers, is knowing how to buy quality coins at reasonable prices. Working with reputable dealers is a safer option than going it alone, and grading services can provide quality assurance.

The Numismatic Guaranty Corp. (NGC) and the Professional Coin Grading Service (PCGS) both rate coins’ quality. Industry professionals consider these ratings essential for collectors.

Ron Drzewucki, CEO of Modern Coin Wholesale in Lakewood Ranch, Florida, says that accurate grading is critical for proper valuation. A one-grade differential between two identical coins can have a significant impact on their relative market prices, he notes.

Lane concurs and cautions collectors about buying uncertified coins. “I would say stick with those two services (NCG and PCGS),” he explained in an interview. “At the very best, you’re going to buy coins that have been professionally graded and they’ve been looked at by professional numismatists.”

According to the expert, these two groups are “the gold standard in the industry. That way you don’t buy an uncertified or what we call in the industry a raw coin. You’ve got to think the first thing if somebody offers you a coin that’s not certified, why after almost 30 years of these two companies in business, why wouldn’t somebody with a very rare valuable coin not have it certified? That should raise the red flags immediately.”

Collectors need to do their homework before trading, he and other numismatic professionals emphasize. Otherwise, they’re at a serious information disadvantage.

The good news is that there are an estimated 7 million to 10 million coin collectors in the U.S., and that market has helped create an industry to serve them.